facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
3 Important Questions to Ask When Hiring a Financial Advisor Thumbnail

3 Important Questions to Ask When Hiring a Financial Advisor

So you’re thinking it’s time to hire a financial advisor…but how do you go about selecting the right one?

Hiring a financial advisor is a major decision that should not be taken lightly.  Unfortunately, many people spend more time shopping for a car than researching and interviewing an advisor.  There have been a lot of changes in the industry with numerous types of advisory firms and their services.  When you’re close to meeting with a financial advisor, it’s important to be prepared to ask the right questions to make sure you, the advisor, and his or her firm are a good fit from the start.  The following are 3 broad, easy-to-ask questions you should have on your list before hiring a financial advisor.

Are you a fiduciary?

This is the single most important question that you can ask and lets you know from the start the advisor’s responsibility to their client.  In our industry, a fiduciary duty is the highest standard of care that an advisor has to their client and ensures the client’s interest is always put first.  Non-fiduciaries only need to recommend investment products that are suitable.  If the advisor is not a fiduciary, how can a client be assured that their interest is put ahead of the advisor and his or her firm?  In other words, the non-fiduciary advisor does not have the same duty to recommend the lower cost and most ideal investment to help reach the client’s goals.    

Tell me about your team’s structure and qualifications? 

This industry has become more complicated throughout the years and advisors running small firms are becoming rarer.  To meet investor needs which can include financial planning, account management, research, operational needs, and compliance, a company with depth and experienced specialists to cover these functions is critical.  You want to make sure your advisor does not spend too much time doing functions that do not add value to their clients.  For example, if your advisor is busy with ongoing compliance needs or stuffing quarterly statements, that’s valuable time taken away from trying to add value to the client relationship.  During the interview process ask how the advisor spends their day and what support staff he or she has to help with managing client relationships.

Beyond job functions it would be good to know the background and credentials of the advisors working with you. Designations such as CFP® (Certified Financial Planner) and CFA (Chartered Financial Analyst) amongst others show that the team members have spent time developing skills in order to best serve the client.

How do you get paid and what is the total cost of the service?

If this question cannot be answered within 30 seconds, I would be concerned.  Advisors and their firm can get paid different ways and a prospective client should know the total cost of the service.  In a fee-based relationship the advisor tends to get a set percentage based on the assets being managed, thus if the account grows, the advisor’s compensation would increase alongside it.  Or it might be a commission relationship where anytime a trade is placed, an advisor would get a portion of that commission.  If the firm does financial planning, it’s important to know if there is an additional fee for the service or is it part of the total fee.  Besides direct advisor compensation, it’s important to understand the total cost including any hidden fees that a client would not see.  Mutual funds and exchange traded funds have internal fees that can range from very little to 2%.  It is common for insurance products or annuities to have an ongoing expense ratio of over 3%.  A higher cost can be suitable for some investments, but this would provide a higher hurdle before the client sees a return.       

There will be other questions you will want answered regarding your specific situation, but these 3 should get you started.  Here at GBB, we take pride in ensuring clients understand every step of the wealth management process. If you would like a professional financial advisor to elaborate on the questions above, or answer any other questions, please call us at (916) 269-0671 or complete the contact form on our website.

Check the background of this firm/advisor on FINRA’s BrokerCheck.